Why Your Refund Shrunk This Year — Even If You Made Less
It’s one of the most frustrating things to see after tax season.
You earned less this year. Maybe you cut back on hours. Maybe business was slow.
And yet... your refund shrunk.
In some cases, people even ended up owing CRA, despite making less money than the year before.
How does that make any sense?
Let’s walk through it — because the math isn’t broken. But the messaging around how refunds work? That definitely is.
First: A Refund Is Not a Bonus
A refund is not free money.
It’s not a gift.
And it’s not a sign you did well financially.
A refund just means you overpaid your taxes throughout the year, and the CRA is sending some of it back. That’s it.
If you paid the exact right amount, your refund would be $0 — and you’d still owe nothing. That would actually mean perfect planning.
Why Your Refund Can Shrink (Even With Lower Income)
Here are the most common reasons:
1. You Had Less Tax Withheld
If you made less income — but also had less tax withheld from your paycheque or business income — there’s simply less to refund. CRA isn’t going to refund what it never received.
2. You Lost Access to Key Credits
Some credits are income-tested — meaning if your income drops below a certain threshold, you no longer qualify for the full amount.
Examples:
Canada Workers Benefit (CWB)
GST/HST credit eligibility
Climate Action Incentive
On the flip side, some credits phase out if your income rises too much — like the Canada Child Benefit (CCB). So there’s a “sweet spot” that affects how much credit you actually see.
3. You Used to Have More Deductions
Maybe last year you:
Contributed more to RRSPs
Paid more tuition
Had higher business expenses
If your deductions went down, your taxable income could actually be higher, even if your gross income was lower.
4. You Didn’t Adjust for Life Changes
Did you:
Change jobs partway through the year?
Collect CERB or EI with no tax withheld?
Switch from salaried to self-employed?
These shifts can mess with how much tax is collected up front — especially if no one adjusted your TD1 forms or pre-payments.
The Refund Myth: Bigger ≠ Better
Some people see a $2,000 refund and think they "won" tax season.
But if you gave CRA $2,000 too much throughout the year, that’s money you could have invested, saved, or used to pay down debt.
A smaller refund could actually mean:
You got your tax planning right
You owed less in total tax
You used your credits efficiently
It’s not about the refund — it’s about your total tax picture.
What You Can Do Going Forward
Check your withholding amounts (ask your employer or update TD1 forms)
Claim all credits you’re entitled to
Don’t ignore benefit eligibility — lower income sometimes unlocks new credits
Don’t panic over a smaller refund — look at the full return
Want help understanding why your refund changed this year?
Let’s go through your return together — no surprises, no confusion, just clarity.
Tax Preparation Services Near You (Not Limited to These Areas):
I regularly work with clients in the locations below, but my services are available to many more regions as well.
